Arbitration in determining prescription drug prices is a viable mechanism to address the burden of high and escalating pharmaceutical prices in the U.S. market, according to policy adopted by the nation’s physicians at the Interim Meeting of the American Medical Association (AMA) House of Delegates. The new policy establishes principles to guide the AMA’s support for the use of arbitration in determining prescription drug prices and builds upon existing AMA policy in favor of drug price negotiation as an alternative to price controls.
“As prescription drug prices have spiked, the AMA has strongly advocated for more competition and transparency in the pharmaceutical marketplace to protect patients,” said AMA President Patrice A. Harris, M.D., M.A. “There are situations in which payers have weakened bargaining power to negotiate lower drug prices due to a drug’s lack of competition in the marketplace, which means patients are left with high out-of-pocket costs and questioning whether they will be able to afford the medications they need. Physicians decided that additional AMA policy was needed to guide advocacy efforts on the use of arbitration and other innovative proposals to promote reasonable drug pricing.”
The AMA principles emphasize that arbitration in determining prescription drug prices should be used for pharmaceuticals that have insufficient competition; have high list prices; or have experienced unjustifiable price increases. Using arbitration will help rebalance the importance of prescription drug affordability with the need for innovation, as an alternative to the status quo, which allows unilateral price setting of drugs by manufacturers without regard to patient access and affordability. Importantly, arbitration provides an incentive for drug manufacturers and payers to arrive at a negotiated price.
The AMA principles recommend that the arbitration process be overseen by objective, independent entities, which would have the authority to select neutral arbitrators or an arbitration panel, with strong conflict-of-interest protections built in.
Arbitration should be coupled with additional innovative proposals that promote value and encourage competition within the pharmaceutical marketplace. Incorporating a drug’s value and cost-effectiveness as factors in determining its length of market exclusivity has the potential to promote increased competition for therapies that are priced too high in relation to their clinical effectiveness and overall value. As such, the new AMA policy supports the use of contingent exclusivity periods for pharmaceuticals, which would tie the length of the exclusivity period of a drug to its cost-effectiveness at its list price at the time of market introduction.
The new policy also establishes principles to guide the AMA’s position on legislative and regulatory proposals that would use the average of a drug’s price internationally to serve as an upper limit in drug price negotiations, set a drug’s price, or determine whether a drug’s price is “excessive” to trigger additional interventions. The policy recommends safeguards to ensure that such international drug price averages are used in a way that upholds market-based principles and preserves patient access to necessary medications.